Turkey’s controversial wealth fund stumbles badly since hasty creation(April 13,2018 Al-Monitor)
ARTICLE SUMMARY Turkey’s sovereign wealth fund, which holds key public assets worth $160 billion, has…
ARTICLE SUMMARYTurkey’s social security agency has stopped releasing data on the labor force and its own financial situation, fueling suspicions that Ankara is trying to smokescreen the true impact of the country’s economic crisis.
Big social security deficits have long haunted Turkey, especially in times of economic turmoil. The problem has now resurged amid an economic recession since last year, with the Social Security Institution (SGK) placing an ever growing burden on the central government budget.
Yet tracking the state of affairs at the SGK has become rather difficult, for the agency has stopped publishing its monthly statistical bulletins since January in what is widely considered to be a blackout. As a result of the information cut, key data on employees and workplaces, healthcare services and the number of those without any social security as well as the agency’s revenues, spending and deficits have remained inaccessible for more than seven months, fueling suspicions that the authorities are trying to conceal the figures.
The SGK’s revenues are as much as half of the central government budget, and the agency is the recipient of the largest support from that budget. The SGK, which serves about 70 million citizens, among them insured employees, pensioners and their dependents, has some of Turkey’s most extensive databases, including the largest database on registered employment. The data collection relies on a long-established mechanism whereby employers notify the SGK of newly hired and departing employees electronically. The agency has more than 33,000 staff members and sufficient equipment, so administrative or technical excuses could hardly explain the delay in sharing its data.
Aziz Celik, a scholar of labor economics and a columnist for BirGun, has insistently questioned the issue, prompting a lawmaker from the main opposition party, Murat Bakan, to formally ask the SGK under Turkey’s right to information law why it has stopped releasing monthly data. In its reply in June, the agency said that work was underway “to update monthly SGK statistical bulletins, both in terms of content and format” so as to bring them in line with international standards and ensure greater transparency and accountability. “Concealing or delaying data is out of the question,” it said.
Update work, however, does not explain why a major public institution has to suspend data releases for such a long time. In his column, Celik argued the explanation was not convincing, pointing to the case of the Turkish Statistical Institute, which “has many times updated or changed methods regarding inflation, gross domestic product and labor statistics, but has never cut the flow of information.” Moreover, he argued, “the SGK data is based on records and not surveys. The SGK compiles those figures regularly every month. … The SGK head knows the number of those insured as well as the financial state of the SGK. He is well aware of the delays in the collection of social security premiums, too. The public, academic researchers and the press, however, remain in the dark.”
The suspension of the SGK data means that researchers and analysts have become unable to review and evaluate key issues such as the impact of the economic crisis on employment in specific sectors, average salaries, the characteristics of new hires, the SGK’s performance in terms of premium collection and the gap between the agency’s revenues and spending.
It is a general rule, however, that economic downturns in Turkey disrupt the social security system. The troubles in social security mechanisms, in turn, contribute to the further deterioration of macro balances, especially in public finances. This is because economic contraction causes employment to decrease, curbing SGK revenues from social security premiums, the agency’s main revenue source, and many crisis-hit employers fail to pay premiums on time. As a result, the SGK struggles to meet health care expenses and pay pensions, sucking in more funds from the central budget to fulfill its obligations. Eventually, social security becomes a black hole, amplifying general public spending and deficits. This is what is happening today.
The World Bank, the Organization for Economic Cooperation and Development and the International Monetary Fund are all forecasting negative growth for Turkey this year: -1.6%, -2.6% and -2.5%, respectively. Negative growth means bigger deficits and a growing need for central budget support for the SGK as employment and thus social security premiums decline. According to budget statistics, funds transferred to the SGK in the first seven months of the year amounted to 24% of central budget spending, representing the largest spending item. As that figure stood at about 22% in the same period last year, the SGK’s burden on the central government budget has clearly increased.
There is widespread concern that the deficit could grow further because while the agency’s premium collection and revenues decline, its spending is more rigid and unlikely to decrease, even if the level of health care services and pensions is far from satisfactory. The pensions of retirees, who number some 10 million, are on par with the minimum wage or $350-360, on average. The 2.2 million retired public servants get pensions a bit higher of about $460, while old-age and disability pensions amount to an average of only $107.
Health care expenses, including medication and treatment, make about a fourth of the SGK’s annual spending, amounting to nearly $20 billion, with the insured still required to make contributions out of pocket.
The SGK’s deficit this year is expected to reach $9 billion as premium revenues fail to cover health care expenses and pensions. It will increase the agency’s burden on the central government budget. Total transfers from the budget to the SGK this year are likely to exceed $33 billion, amounting to about 4%-5% of gross domestic product. About a fourth of this sum stems from the SGK’s deficits, while the remaining comes from the state’s other social security obligations. The SGK may be trying to smokescreen this growing burden by suspending data releases, but the problem has grown too vast to be concealable.